The impact of Curaleaf Holdings Inc.’s US$286-million acquisition of EMMAC Life Sciences Ltd. should “outweigh” the transitory issues that created a fourth-quarter sales moss, according to BTIG analyst Camilo Lyon, who said “the biggest gets bigger” with the deal.
“CURA grew Q4 sales 205 per cent, slightly below our 217-per-cent estimate, but nonetheless impressive as macro factors during the quarter (surging COVID cases, lack of stimulus, high unemployment) clipped demand,” he said. “Gross margin came in down 400 basis points below our 52-per-cent estimate largely due to the transition of management fee income to sales, however, adj. EBITDA margins of 23.4 per cent beat our 21.3-per-cet estimate on tighter expense controls.
“That said, we believe the more important news is the acquisition of EMMAC.”
Mr. Lyon said the acquisition of the privately held European medical marijuana producer brings significant expansion potential for Curaleaf.
“EMMAC, while not profitable today, gives CURA a platform to enter Europe, a high grade medical market, which has similar consumption characteristics to the U.S., but is 3 years behind the U.S. in its market development,” he said. “With a population twice that of the U.S., entering Europe now while valuations remain reasonable, in anticipation of the acceleration of demand makes long term strategic sense. With this acquisition, CURA also gains shared knowledge on best manufacturing practices (including EMMAC’s GMP certification),a pharmaceutical grade supply chain, and R&D processes that can transfer to its U.S. operations. Importantly, EMMAC management is staying onboard and will continue operating the business such that it does not distract from CURA’s U.S. operations. With respect to the U.S., the company continues to invest in cultivation expansion (NJ, AZ,FL, PA, IL), retail/wholesale door openings, and new product introductions, all of whichshould support outsized revenue growth of 108 per cent this year.”
Though he sees its fiscal 2021 as “conservative,” he trimmed his target for Curaleaf shares to $34 from $35 based on “slightly” lower sales and earnings assumptions. The average is $25.14.
He reiterated a “buy” recommendation.
Elsewhere, MKM Partners analyst William Kirk hiked his target for to $25 from $18 with a “buy” rating, while Haywood Securities analyst Neal Gilmer raised his target to $28 from $26 with a “buy” recommendation.
“Curaleaf continues to perform well across key markets in the U.S. and we expect continued positive momentum in the U.S. With the announced entry into the EU market, Curaleaf is demonstrating its leadership position to expand into other markets,” said Mr. Gilmer.